Global markets are starting the week deep in the red amid a large sell-off partially triggered by the Bank of Japan’s decision to raise rates.
Following the bank’s decision to raise rates to 0.25%, Japan’s Nikkei 225 Index had its worst day since March 2020, dropping 5.9%.
Then, on Monday, the Nikkei experienced its worst day in history, plummeting 12.6%.
Trading was halted several times on the Nikkei, Korea’s KOSPI, Turkey’s Borsa, as well as Robinhood, the biggest retail trading platform in the world.
Meanwhile, crypto markets have been hammered, and according to data aggregator Coinglass, over $1.22 billion in liquidations have been triggered – mostly long positions on Bitcoin (BTC) and Ethereum (ETH).
The extent of the damage has yet to be fully determined, but there is some speculation that one or more large players in the industry may have been hit badly by the market move.
However, speaking with CNBC early Monday, Fundstrat’s Tom Lee said the recent episode is more likely a “short and scary” move rather than the beginning of a long-term downtrend.
Lee suggests the Volatility Index (VIX), a popular gauge of the stock market’s expected volatility, could be the indicator that signals the next move in the short term, but says that uncertainty stemming from Japan shouldn’t significantly effect US markets.
“You have to watch the VIX, and when the VIX peaks and starts to roll over and fall down, the recovery can be just as quick. I think a lot of this depends on whether financial conditions in the US start to tighten, meaning do markets seize up. But with interest rates falling, the consumer’s still in pretty good shape, I think on the other side of this it’ll look like a growth scare…
The 2-Year is signaling the Fed is behind, because the 2-year has fallen further, but it does seem as we look back a lot more this is because of the surprise hike from Japan, and the sort of knock-on effects from there. If that is the primary source of the reaction, I know it’s going to be tumultuous for markets, but for the US economy and it’s not necessarily bad news, and I think that’s we can bounce.”